Pauley ruled that the interns had essentially completed the work of paid employees – organizing filing cabinets, making photocopies, taking lunch orders, answering phones – and derived little educational benefit from the program, one of the criteria for unpaid internships under federal law. Pauley also ruled that the plaintiffs were employees and thus protected by minimum wage laws.

“I hope this sends a shockwave through employers who think, ‘If I call someone an intern, I don’t have to pay them,’” Eric Glatt, one of the plaintiffs, told ProPublica. “Secondarily, it should send a signal to colleges and universities who are rubber-stamping this flow of free labor into the marketplace.”

The “Black Swan” case is one of three class-action lawsuits in recent years that have alleged wage violations by companies, and the first to result in a ruling; one other settled out of court, and the other was denied class-action status. This week’s decision could have broader implications for companies and courts across the country.

As we’ve reported, internships in the for-profit sector must meet six criteria to qualify to be unpaid under federal minimum wage law. One is that the internship must benefit the intern; another is that the company must derive no “immediate advantage” from the intern’s work.

Previously, some courts have ruled that interns — legally considered trainees — can be unpaid if they derive the primary benefit from their work, an argument Fox Searchlight also relied on in this case.

But Pauley called the “primary beneficiary” test too “subjective and unpredictable,” and focused instead on whether the company derived an immediate advantage from the interns’ work.

Pauley also wrote that the “primary beneficiary” test doesn’t comport with a seminal Supreme Court case that undergirds the law about unpaid interns today. In that 1947 case, Walling v. Portland Terminal Co., the Supreme Court ruled that a training program for prospective railroad workers was exempt from federal minimum wage laws.

“I think [the decision] might reflect a more modern understanding that most interns provide genuine labor to their employers,” said David Yamada, an expert on labor law and Director of the New Workplace Institute at Suffolk University. “The judge is looking at this and saying ‘These guys aren’t doing a high school internship where you pad around after someone all day and go home. These are professional programs, and they’re learning their trade by delivering work.’”

The ruling also raised the issue of college credit, which Yamada said “opens a very interesting door.”

Many employers attempt to use academic credit as a legal justification for unpaid internships. But in his ruling, Pauley explicitly noted that academic credit doesn’t automatically pave the way for no pay.

Rachel Bien, an attorney who represented the plaintiffs in the Fox case, said yesterday’s ruling shows that “that justification [of college credit] is not founded on the law.”

“The law focuses on what employers are doing and if they’re offering a bona fide training program,” Bien explained

One last point to note: The judge also certified class-action status for this lawsuit, which means other interns at Fox may be eligible for back wages. Pauley’s ruling is contrary to that in a similar case against the Hearst Corporation. A judge declined to grant the Hearst case class-action status, saying the interns (at various magazines and with various duties) didn’t have enough in common.

Chris Petrikin, a spokesperson for Fox, said the company was “very disappointed” with the ruling and plans to appeal to the Second Circuit Court of Appeals, where the differing legal approaches of the Fox Searchlight and Hearst cases may be reconciled.

ProPublica is currently investigating internships in the United States that violate labor laws, such as the Fox Searchlight case. And we need your help. To contribute, you can:

14 comments

Of all the internships I hear about, I think that the “foot in the door” positions have to be the most offensive. You won’t get paid, you won’t get any industry experience, but you will have an inconsequential chance to stand near someone who sounds vaguely important!

It occurs to me that maybe payment should be contingent on a grade assigned by the school. If the student can convince an advisor that he learned something substantial at the internship, the company can keep its money, otherwise it had better pay for every hour. That should prevent students from taking crappy positions and prevent companies from trying to scam free labor.

The infrastructure is already there for that, at most schools, in the form of “project” courses. The student finds an instructor and checks in periodically to present a status update, and the instructor assigns a grade at the end of the semester.

I have mixed feelings about unpaid internships. As a journalism major, I had two unpaid internships in college, both of which resulted in a huge binder of clips and helped me land my first job. For me personally, it was worth it. I can certainly see how students can be exploited, but this could happen even if they are being paid; the experience of the internship could still not be that valuable and, in today’s economy, you don’t have a lot of time to gain valuable work experience that will get you hired post graduation.

Students should be required to submit evaluations of their internships to advisers, department heads, career counselors, etc. These evaluations should then be used to determine whether or not the employer is eligible to recruit interns through the school or whether an internship with that company would qualify for credit in the future. This might help to ensure that the internship is a valuable learning experience, whether or not the student is compensated for their work.

Internships separate students according to their means. Wealthy students can go to big cities and work for free; students without the money can’t take that risk. This is the very type of discrimination that most people find offensive in other situations.

But Lou Ann, can’t you say that about the entire job landscape? If there’s a bunch of jobs in, say, the San Francisco Bay Area (a popular target, especially for computer-related careers), only the people who can afford to move there and survive until finances stabilize (or are willing and able to sacrifice everything in their life for a job) can risk the offer.

And it’s worse for a normal job, because nobody’s going to hire you from across the country on your word that you’ll move once the paperwork is signed.

I’m not saying it’s not bad, but it’s systemic.

I also—again—want to point out that an internship where you move shouldn’t be an internship. Internships are meant to be part-time work that complements an education, not full-time work where you leave school for months at a time to be in the same state as the “internship.” That’s called a job, and I assume that nobody believes that should be unpaid.

It’s starting to dawn on me that this is really the core problem. It sounds like the definition of internship has spread into whatever companies need it to, in order to avoid paying a decent salary, whereas what I’m talking about (and what it sounds like Sarah is talking about) is anything but. If we can split the two ideas, it might be easier to talk about.

John, how many internships of the type you describe would be available in the near vicinity of many college campuses? College towns rarely hold much in the way of meaningful internship opportunities. Summers, “wintersessions” and “Maymesters"are the times when students can leave the confines of isolated campuses and get the experience they need to launch a career. Some are fortunate enough to get financial aid for this, most are not.

If a skill gained by an intern (running copies, getting lunch for the boss, doing routine filing, etc.) would not be seen as an asset by a prospective employer, it wastes the intern’s time. Any internship that is provided credit in an institution of higher education should be monitored by the college or university to guarantee that the intern is getting opportunities that can only be provided in a real world employment environment. I am also very concerned at the number of my friends whose children have graduated only to be limited to “unpaid internships” in which they do real work for a company for no pay and no guarantee of paid employment in the future. I am not a fan of additional regulation, but isn’t this where labor unions used to be able to protect workers from exploitation?

Rulings like these have already had, and will continue to have, a chilling effect on small businesses offering internships to students who desperately want them. “Sorry, we can’t risk getting sued so you’re out of luck.” Some internships may be exploitative and should be stopped. But this paints with far too broad a brush, and will end up harming the very people it is supposedly trying to protect.

Lou Ann, maybe there’s a regional component as well? The areas that seem to be in the news match my experience in lower New York: Big companies make sure to have offices near schools specifically to grab interns. It’s a strategic decision to speed up hiring later.

When it’s in the news, it’s always a company in a big city, and the interns go to school locally. I’m not saying it never happens, but I never hear about an Iowa State kid taking an internship in Florida for no money. So maybe I’m biased; do you see this happening?

I’m not really counting the sort of “gofer” internships, where the draw is the outside chance of getting to stare at an industry VIP (fashion designer, director, whatever). Those are about as legitimate as whitewashing fences with Tom and Huck, and should be treated as such.

Alan, if there’s one thing the last century of legal decisions has taught us, it’s that companies will find a way to overturn the laws that inconvenience them, let alone threaten their ability to do their work. They’ll be fine. In the meantime, use the law to crush companies getting free labor without providing any benefit.

I’m one of these unpaid industry interns. When I old my boss about this article, his response was, ‘You know this just gets you blacklisted in the industry’. Our company has a decent sum of money coming in, and me and my fellow interns are always doing library runs, for which our mileage is not reimbursed- they don’t even offer to pay for our lunches. We keep the same hours as the assistant, which is one hour over the legal limit of ‘interning hours’. I make absolutely nothing, when two of my bosses make seven figures, and another makes six. I have to say, getting coffee, books, and reading scripts has not been invaluable experience. Alas, ‘paying your dues’ is so ingrained in this industry that I feel truly powerless to do much more than rant about it.

I have mixed feelings about this issue. On its face, allowing someone to work for you for free for 10 hours a day seems morally wrong, but an intern can always leave. I started out as an intern in the film industry in Los Angeles (I did receive college credit). We were expected to work as many (or more) hours than the assistants. Some us of had as many responsibilities as the assistants who were being paid. We all knew this was the case and we still chose to intern there. Interns are woven into the culture of feature film production. Interns, although not paid, have access to hot screenplays and internal documents circulated by executives. (What student in film school has access to the latest screenplay by Steve Zaillian?). We covered desks and listened in on important phone calls between studio heads and producers. I learned a ton and working for free was a small price to pay for learning the ropes and networking. I ended up being hired at that company one month later and went on to become a VP at that company several years later. These production companies are not posting job listings on Monster or Craigslist for available positions, they are hiring the interns that have proven themselves by already working for free. My motto was always work your butt off and make it so that they have to hire you because you are indispensable. Doesn’t always pan out, but it did for me.

The decision makes sense to me. There is a huge distinction to be made between a bona fide internship and a company taking advantage of students’ desperation to get experience before entering the workforce. I did an unpaid internship for an entire summer as a law clerk for a district attorney. I had to take out extra loans just to do it, but it was an amazing, incredibly valuable experience that added significantly to my classroom education.

This whole situation irritates me. I started out as an unpaid intern - getting coffee, making copies, going on runs and never getting reimbursed for mileage while driving an hour and a half to my internship. Yes - it sucked, but without that experience and my hard work ethic I never would have made it into the feature film positions that I have today. I do agree that some companies take advantage of interns (although I have never seen it on any film I’ve worked on - large scale or independent). I do however feel that this new generation of 20 somethings right out of college seem to have an overwhelming sense of entitlement all while having no work ethic or experience. This seems to be a growing trend among the interns who I have worked with lately who complain about working 2 hours a day if that. I feel this case is more of a case of lazy kids who don’t understand that they need to work their butts off to get where they want to be. It takes years to do that not just a few weeks.

a lot of people have made the comment that they did free internships and it led to something good. The same could be said of bribery/kickbacks, or sleeping with the boss. The damage is done primarily to the ones who bribe their employeers with free work and then get nothing in return.

Also, there’s a common mistake in thinking it’s a free market so all is fair since people can just quit or be fired at any time. The employment market does not function as a classic or perfect free market system to any recognizable degree. There are barriers to entry and asymetric access to market and pricing information.

Less economically valid is the false assumption that supply and demand principles apply when the supplier has only one item available for sale and can not produce substitutes and has no alternative uses for the supply other than sale. In economic supply and demand it’s always assumed the supplier of apples can switch to growing oranges if demand is insufficient or price falls, but if you’re selling your services as an employee, you can’t really switch to selling something else easily or maybe only after excessive re-education costs.

Imagine if a jewelry case of diamond rings were being sold and but each diamond ring had a separate person selling it and the person didn’t know what the others were selling their diamond rings for but they knew 10% of the diamond rings would not sell at the end of the year and would be ground up into dust and force repriced at $70/lb to be sold and used as industrial grit for grinders.

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The number of internships in the United States has ballooned over the past few decades. But oversight and legal protection for unpaid interns hasn't kept up.

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The number of internships in the United States has ballooned over the past few decades. But oversight and legal protection for interns hasn’t kept up. We’re investigating companies that may be violating labor laws by employing unpaid workers, schools’ role in the issue and how it’s affecting American workers.

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